New gas price every six months on the basis of global rates

The government has decided to increase prices of domestically produced natural gas from the existing $4.2 per mBtu to $5.61 per mBtu. The new price, based on the recommendations of a Committee of Secretaries (CoS) that reviewed the UPA government’s gas pricing guidelines of January 2013, would lead to an impact on prices of power, fertilisers, CNG and PNG consumers.

“By the formulation approved today, the upward revision will be 75 per cent less than that arrived at using the Rangarajan formula,” an official statement said.

The government will get additional revenue of Rs 3,800 crore pr Rs 38 billion annually.

The new price will be determined on Gross Calorific Value (GCV) basis and reviewed every six months against the Rangarajan committee’s recommendation of annual revisions. The first price would be determined on the basis of global prices prevailing between July 2013 and June 30, 2014. This would come into effect from November 2014, and would be valid till March 2015.

The price would then be revised for the next six months ending September 2015 on the basis of prices prevalent between January 2014 and December, 2014.

The prices would be announced 15 days in advance of the half year.

“The matter relating to cost recovery on account of shortfall in envisaged production from D1, D3 discoveries of Block KG-DWN-98-3 is under arbitration. Hence the operator (RIL) would be paid the earlier price of $4.2 per mmbtu till the shortfall quantity of gas is made good,” the statement said.

The difference between the revised price and the present price ($ 4.2 per mBtu) would be credited to the gas pool account maintained by GAIL. The outcome of the award of the pending arbitration will determine whether the amount collected in pool account is payable to the contractors of this block or not.

Experts hailed the government’s move to revise the gas rates. “We are quite enthused. This is quite positive. It would incentivise more exploration and production,” ONGC Chairman D K Sarraf said.

He added every dollar rise in the gas price will result in Rs 4,000 crore or Rs 40 billion of revenue and Rs 2,300 crore (Rs 23 billion) in profit after tax.

The revised gas price would be applicable to all gas produced from nomination fields given to ONGC and OIL India, New Exploration and Licensing Policy (NELP) blocks, some pre-NELP blocks and coal-bed methane blocks.

The new prices would not apply to small and isolated fields in nomination blocks and those pre-NELP blocks where government approval has not been provided under the production sharing contract.